South Africa Could Halve Number of Poor by 2030, World Bank Says

(Bloomberg) -- South Africa could more than halve its number of poor people to 4 million by 2030 if it addresses corruption, gets free higher education right and reduces policy uncertainty in its mining industry, the World Bank said.

“Slow private investment growth and weak integration into global value chains prevent the country from reaping the new economic opportunities emerging around the globe, and from catching up with living standards in peer economies,” the Washington-based lender said in an economic update on South Africa released Tuesday.

When measuring the distribution of wealth using the Gini coefficient, South Africa, with a population of about 55 million people, ranks as the world’s most unequal among countries for which comparable data exists, the bank said. Progress in access to education since white-minority, apartheid rule ended in 1994 means the number of people living on $1.90 or less per day should drop to 8.3 million by 2030 from 10.5 million last year, it said.

While South Africa has the continent’s most-industrialized economy, expansion has failed to exceed 2 percent annually since 2013 as widespread graft allegations, political turmoil, policy uncertainty and the worst recorded drought in more than a century undermined output in the world’s largest platinum producer.

Comparative Advantage

South Africa “needs to build on its comparative advantages -- that of an industrial skilled economy -- to develop new domestic and international markets through higher productivity and innovation,” the lender said. That will help the nation reduce its high dependency on commodity-price movements.

The economy expanded 1 percent in 2017. The World Bank sees it growing 1.4 percent this year, it said in the report. That’s higher than the 1.1 percent it estimated in January.

“Raising South Africa’s economic potential will require breaking away from the equilibrium of low growth and high inequality in which the country has been trapped for decades,” the bank said. “Inequality fuels the contestation of resources through taxation, expropriation, corruption and crime, which discourages the investment needed to accelerate job creation and reduce inequality.”

The government raised the value-added tax rate by one percentage point to 15 percent -- the first increase since 1993 -- a move that’s seen as hitting the poor hardest. That was part of plans announced in the budget in February to raise more revenue needed to stabilize debt and prevent a third junk credit rating.

About 17 million South Africans receive various forms of social grants, which cost the government more than 150 billion rand ($12 billion) annually in what is the single biggest program instituted by the post-apartheid government to alleviate poverty.

“Fiscal redistribution through social assistance, while sizeable and effectively targeted, has been unable to redress the rise in inequality since 1994, and is increasingly constrained by narrowing fiscal space,” the bank said.

To contact the reporter on this story: Ana Monteiro in Johannesburg at amonteiro4@bloomberg.net.

To contact the editors responsible for this story: Rene Vollgraaff at rvollgraaff@bloomberg.net, Helen Nyambura, Michael Gunn

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